P O L I C Y
F O R U M
Big Business, Big Government,
and Libertarian Populism
resident Obama took office promising to change the way
politics is done in Washington. No longer would the special
interests run policy and no longer would government line
the pockets of its friends at the expense of everyday Americans. But
ayearlater,Washingtonlooksunchanged.BigBusinessisstillinbed
with Big Government and Obama’s promises have been broken.
AtaCatoBookForuminJanuary,TimothyP.Carney,lobbyingeditor of the WashingtonExaminer, explained why this disappointment
wasprobablyinevitable.Inhisbook,Obamanomics:HowBarackObama Is Bankrupting You and Enriching His Wall Street Friends, Corporate
Lobbyists, and Union Bosses, he traces the role of lobbying interests in
politics.CommentingonCarney’sbookwereUweReinhardt,James
Madison Professor of Political Economy at the Woodrow Wilson
School of Public and International Affairs at Princeton University,
and New York Times columnist Ross Douthat.
P
TIMOTHY P. CARNEY: It’s April 2008. Barack
Obama is up against Hillary Clinton in the
primaries. He has a lead. He’s got to knock
her off. His whole thing, vis-à-vis Republicans and Hillary Clinton, is that he’s the guy
who’s going to clean up Washington and
limit the special interests. He runs an ad in
which he says:
The pharmaceutical industry
wrote into the prescription drug plan
that Medicare could not negotiate
with drug companies. And you know
what, the chairman of the committee
who pushed the law through went to
work for the pharmaceutical industry
making two million dollars a year.
Imagine that. That’s an example of
the same old game-playing in
Washington. I don’t want to learn
how to play the game better. I want to
put an end to the game-playing.
A few months later, Billy Tauzin, the
Pharmaceutical Research and Manufacturers of America (PhRMA) lobbyist and former committee chairman Obama was talk-
ing about, gets a seat at the health care table.
As the Los Angeles Times put it, “Obama gives
powerful drug lobby seat at the healthcare
table.” What happened, according to the
Times, was that White House chief of staff
Rahm Emanuel met Tauzin in the Roosevelt
Room, which is just a few steps from the
Oval Office in the West Wing, and they cut a
deal: Obama would drop his opposition to
the provision that Medicare could not negotiate with drug companies (the same deal, in
the April 2008 ad, he castigated Tauzin for
cutting). Nor would he go after the favor the
drug companies get, where our government
keeps out drugs from places like Canada
that have price controls. The health care bill
also contains hundreds of billions of dollars
a year in prescription drug subsidies. In
exchange, Billy Tauzin and the drug lobbyists said that, if you’re in the Medicare donut
hole, drug companies will sell you discount
drugs. They also agreed to spend $150 million running ads to support healthcare
reform.
How did this happen? Answer: follow
PhRMA cash. Barack Obama raised $2.1 million from the drug industry in 2008. That’s
about equal to what John McCain raised,
plus what George Bush raised in both of his
elections combined. It’s the most, by far, anybody’s ever raised from the drug industry.
What’s going on here is that whenever
government gets involved, the door opens
for special interests to get their way. Contrary
to the common myth, big government ends
up benefiting the biggest businesses.
This is governed by a few laws—I call
them the laws of Obamanomics, but they
were true from George Bush all the way back
to Alexander Hamilton. First, whoever has the
best lobbyist wins. If government’s not
involved, having a lobbyist isn’t worth very
much, but once government gets involved,
buying the best lobbyist wins you the little
details in the bill. Second, the overheadsmash:
regulation adds to overhead and the cost of
doing business. But that overhead is always
easier to bear if you’re a big business. Often
getting regulated is profitable when you’re a
big business, because it crushes the small
guys. Finally, the confidence game: whenever
you see Republicans talking about why we
need Wall Street, they say “we need to restore
investor confidence in Wall Street.” Government benefits big business because it provides confidence.
It boils down to this. Every time government gets bigger somebody is getting rich.
That’s the general theme through my book,
and I think it’s a theme that’s increasingly
being perceived since the Wall Street
bailouts. People no longer find it easy to say
that what Wall Street wants is some laissezfaire Wild West where they’re left alone. But
it’s missed too often when people try to tell
the story.
Let me give two examples. The first is climate change. Nike got applauded when it
left the Board of Directors of the Chamber
of Commerce over climate change, because,
oh, Nike must care about the planet—it
March/April 2010 Cato Policy Report • 9
P O L I C Y
F O R U M
wants to regulate greenhouse gases! Nike
makes all of its shoes in Malaysia, Indonesia,
China—outside the United States. Regulating greenhouse gases here doesn’t add to
their costs. But New Balance, one of their
smaller competitors, makes its shoes in
New England. They would be hit by these
costs. So Nike is saying we want you to tax our
competitors’ energy, and they’re getting
applauded for it.
Second is the bank bailouts. There’s a cartoon where a customer is standing in line at
a bank and the teller says, from behind the
counter, this is a bailout! and sticks a gun out,
robbing the customer. Obama says he’s battling and being tough on Wall Street, but we
can poke huge holes in that. First, he re-nominated Ben Bernanke, who was Captain
Bailout. The guy who came up with the original ideas for the AIG bailout and the Bear
Stearns bailout was New York Federal
Reserve president Timothy Geithner. And, if
you’ve been following the headlines,
Geithner has been aggressively trying to hide
exactly what was going on in those early
bailouts. And Obama made him the treasury
secretary. Geithner’s chief of staff at treasury
is a former lobbyist for Goldman Sachs.
Rahm Emanuel used to be a consultant for
Goldman Sachs. Obama has proposed more
bailouts, and his financial reform looks like
it’s institutionalizing bailouts.
My point is not that Obama is some sort
of evil shill for big business. My point is that,
when government gets bigger, big business
ends up profiting. Both parties are the parties
of big business.
UWE REINHARDT: Tim’s Obamanomics is a
stunning read. It is revealing in many ways.
It’s stuff we knew, but it’s put together in
a way that irritates you and makes you
angry and reflective—and worried about
our country’s future.
I liked the passage, on page four, where
Tim writes Obama’s “policies favor Big
Business, not out of nepotism or corruption, but out of tactical necessity—he needs
powerful allies—and out of economic reality:
expanding the government tends to boost
Big Business.” And that is certainly true. Big
Business owns America, not the American
people. They just live and work there.
10 • Cato Policy Report March/April 2010
So the themes in this book are that big
business makes tons of profits off federal
spending and therefore favors it. Big business loves regulation. The business oligarchy
can and does purchase the protection of
Congress by buying legislative favors.
Candidate Obama made statements and
promises during his election that are belied
Timothy P. Carney
“
When government gets bigger,
big business ends
up profiting. Both
parties are the parties
of big business.
”
by his conduct as president. And so on.
To my mind, the central theme of
Obamanomics is that America’s system of
governance sucks. Ours is a very untoward
way to run a government when you come to
think of it. I come from parliamentary systems—Germany and Canada—where you
cannot buy legislators retail and you cannot
even buy the party wholesale. I don’t know
how they buy influence, but it is illegal to do
what is perfectly legal in this country. We
have debased democracy.
Let me look at some of the chief complaints of Obamanomics. First, he argues, big
business makes profits off government. But
what, exactly, is it that bothers Tim about
this? You have soldiers who need guns and
tanks and missiles and stuff. So government
collects money from the taxpayer and pays
the private producers who make guns, and
bombs, and stuff for the soldiers. How can
you avoid this? The only alternative is that
government collects taxes, makes the stuff
itself, and then gives it to the sailors. Is that
to be preferred?
When the movie Platoon came out in the
80s, our kids were very little. I took them to
see it and they were white as a sheet coming
out. And I said, “Hey, you are upper middle
class kids, this isn’t going to happen to you.
You aren’t going to be in the rice paddy.
There will be others doing that, mainly from
the lower income classes. You are going to be
shareholders in the defense industry, and
every time a gun goes rat-tat-tat, you’ll make
some profits. And every time a missile goes
down, you’ll make some profits.” That is
how national defense works these days.
But what seems to bug Tim the most,
and me too, is that the business oligarchs
whose firms produce things for government
do not just deliver efficiently produced stuff
to government at reasonable prices, but that
with their tax-financed profits they can then
literally purchase the affection of the legislators who then steer even more profits to
them. It is a sort of circular flow of money,
but not the one we teach students in macroeconomics.
And here you have to blame the First
Amendment—who ever thought that purchasing legislators is an expression of free
speech protected by the First Amendment? I
didn’t think that’s what was meant by the
First Amendment, but the Wall Street Journal
pushes it all the time.
Now imagine an elderly woman without
any net worth. That is not uncommon in
American life—you come to 65 without
much net worth. Would the private health
insurance industry take care of her? No, it
can’t. Should she just be left alone to die? Do
we want this? No. So you’re going to have
government look after her, and you have the
same circular-flow-of-money story here once
again. Her health care can be government
produced, like for veterans. But typically we
use private producers to serve governmentinsured Americans. The board of directors of
the largest insurance company in America
can’t actually take money from vendors, but
the House Ways and Means Committee and
the Senate Finance Committee can do exactly that, and they are the board of Medicare.
Once again we see why big business might
like government spending.
Secretary of State Hillary Clinton was
recently reported to have raised private
money for a pavilion in China. Why does our
secretary of state have to do this for a privatesector pavilion? I would tell American businesses, if you can’t get your act together,
don’t go to China. Let the Chinese have that
spot. They would probably know what to do.
But don’t ask the secretary of state of a great
country to go fundraising for you to put up
a pavilion for the United States. Why didn’t
you pay for this yourself? And heaven knows
what favors the secretary of state now owes
the folks who ponied up money for the pavilion. “None,” they’ll protest. Oh, yeah?
And all this is going to get worse.
OpenSecrets.org observes that every four
years the cost of a presidential election doubles. This leaves health spending in the dust.
Every four years, from $340 million in 2000,
to $740 million in 2004, to $1.3 billion in
2008. Soon our politicians will need to
mortgage their souls unless we stop this
mad trend.
Tim writes that President Obama made
statements during the campaign that were
lies. Like Captain Renault in the movie
Casablanca, I am shocked, just shocked.
Now let me be truly outrageous and sacreligious. Suppose President Ronald Reagan
had said during his campaign, “If I’m president, I may deploy U.S. marines to the
Mideast, and if they get hurt there, I’ll just
pull out again, pull down the flag and run.”
He didn’t say that in the campaign, of
course. Far from it! But he did just that
when he was president. Or suppose he’d
said in the campaign, “I’m going to expand
the government-run health insurance program called Medicare to give the elderly
coverage for prescription drugs and call it
‘catastrophic coverage.’ On top of that, if
elected I will implement administered
prices for hospitalized Medicare patients, a
Soviet-style system in which the central government sets prices for the whole country,”
which he actually did, in 1983. Finally, suppose he had said that “I’m going to give the
American people a massive tax cut, but I
also won’t cut government spending, so I
propose to increase the federal deficit
throughout my term and hope my successor will do the same.” Spending was out of
control in both the Reagan and Bush
administrations. Reagan ran on the slogan
that he’d balance the budget by 1984, but
Uwe Reinhardt
“
[The American
people] want mellow
messages that if
the candidate before
them wins, everything
will be made right
painlessly.
”
no such thing ever occurred. Do we remember him as an inveterate liar?
A major tragedy in our democracy is that
the American people just do not want to
hear the harsh truth during an election campaign. They want mellow messages that if
the candidate before them wins, everything
will be made right painlessly. That’s what we
want. And that is why politicians say one
thing during an election and often do the
opposite once they govern. They are not liars
in the ordinary sense of that pejorative
word. They merely state “unavoidable and
justifiable untruths”—unavoidable by any
candidate who seeks to win an election
among a people that, as Jack Nicholson puts
it in the movie A Few Good Men, cannot handle the truth. If we the people want to know
why politicians lie to us, we should look into
the mirror. We’ll see the culprits.
Tim’s is an eye-opening book that should
give American citizens pause as they boast to
the rest of the world that we have the best
government in the world. I’m no longer convinced of that, given how we finance it. I
would offer two alternative titles for Tim’s
book, however. One is If You Ever Again Trust
a Presidential Candidate’s Word, You May Want
to Buy My Oceanfront Property in Iowa. That
would have been a very good title. Here’s
another: What Were the Founding Fathers
Smoking When They Gave Us a Government that
Sells Economic Favors Retail?
ROSS DOUTHAT: That’s kind of a tough act to
follow! But it’s part of something very interesting about the current political conversation in Washington; you have a fascinating
left-right convergence as the realities of liberal legislating become more apparent. This
is happening, I think, because there are a lot
of people on the American left who cut their
teeth in politics during the Bush era and for
whom this was their first profound experience of government and misgovernment.
They came into the Obama era with blithe
assumptions about what governance by
their own side would mean. Now they are
coming to terms with the fact that a lot of
what they hated about contemporary
Washington in the Bush years was actually
the direct result, as Tim rightly points out,
of having built a big, expensive government
that every corporate big shot in America
feels the need to influence.
It’s also been interesting to see the liberal
response, which has been defined by complaints about the “structure” of the U.S. government. And this is, I think, one of the
most interesting turns in the political conversation in Washington recently. You have
prominent liberal pundits, young and old,
at a time of seeming liberal triumph crying
out that our government is broken.
On the conservative side, I thought I’d
just talk briefly about what the conservative
response should be and whether one is really possible, or whether conservatives should
Continued on page 12
March/April 2010 Cato Policy Report • 11
Dan Griswold tours in promotion of Mad about Trade
Free Trade’s Tireless Crusader
f there is any area of policy that ought to
be settled, it’s the economic benefits
from unrestricted free trade. Adam
Smith made the case convincingly the
same year America declared its independence, but almost two and a half centuries
later there are still those who would use
protectionism to shackle the many for the
benefit of the few.
Free trade remains a message every bit
as worth fighting for today as it was in
1776. Daniel Griswold’s book Mad about
Trade: Why Main Street America Should
Embrace Globalization has been both a hit
for the Cato Institute and an important salvo in this fight. First reviewed in the
November/ December 2009 issue of Cato
Policy Report, Mad about Trade presents a
clear-eyed, optimistic, and accessible argument for the virtues of open and unencumbered trade. Publishers Weekly praised the
book for explaining “the complicated
mechanisms of world trade with brisk,
easy-to-read prose.”
The story of this significant book did
not end with its publication, however. In
the months since its release, Griswold, the
Cato Institute’s director of trade policy
studies, visited sites along the West Coast,
as well as the Carolinas, New England, San
Francisco, San Diego, Florida, and Chicago, speaking to student groups, think tank
scholars, and concerned citizens. And even
when he couldn’t appear in person, Griswold spread the book’s message through
10 radio appearances, from Bob Harden’s
Morning Edition on WGUF in Naples, Florida, to the David Boze Show on KTTH in
Seattle, Washington, to the Mike McConnell
Show on WLW in Cincinnati, Ohio. Among
all this, Griswold wrote frequent Mad about
Trade–related editorials in newspapers,
magazines, and journals.
“Americans are bombarded everyday
with misinformation about free trade from
populists on the left and the right. Mad
about Trade challenges the critics on their
own turf,” says Griswold. “The book tour
has allowed me to explain how free trade
affirms basic American values of compassion and fairness, competition and freedom, progress and peace.”
Daniel Griswold speaks about his book Mad about
Trade: Why Main Street America Should Embrace
Globalization in December at the Yankee Institute
for Public Policy in Connecticut.
Continued from page 11
largest insurance company, its largest banks,
and so forth.) So I think that spirit is exactly
right. You see it in the Tea Party movement
and in politicians who are trying to harness
the Tea Party movement (or be harnessed by
it). I think that’s healthy.
There are two problems with trying to
implement libertarian populism, though.
First, which is something Tim gets into in
the book, is that Democrats may be becoming America’s other party of business, but the
idea of taking sides against corporate
America is still foreign to many Republicans.
The second problem—a deeper and longerterm problem for partisans of limited government—is that the most successful arguments that are being made by conservatives
against the Obama administration’s proposals tend to be defenses of middle-class entitlements. So the only way you could imagine
an American government that simultane-
ously lives up better to the ideals that Tim is
speaking about and does some of the necessary things that Professor Reinhardt is talking about, is a much more rigorously meanstested welfare state. That is something that
the free-market side of the argument should
be supporting. But, in fact, the free-market
party in America oscillates wildly between
sweeping denunciations of big government,
on the one hand, and support for existing
middle-class entitlements on the other. So,
in the long run, even if some particular victories on regulatory fronts are won, if you
look at the trajectory of government spending and government power in the United
States over the next 50 years, it’s all driven by
entitlements. There’s a great danger that the
Tea Party movement, libertarian populism,
and so forth could win some short-term battles, but use tactics that cause them to lose
the larger war.
I
just say “Our government sucks and we have
to deal with it.” And that may be the place
where we all end up. Tim, at the end of his
book (as all political books must do), makes
some targeted suggestions for reform, and
he also makes a broader point about the spirit that the Republican party—if it is a conservative, free market, limited government
party—should have in the age of Obama. It’s
a spirit of “libertarian populism.” I think
that’s exactly right. I’m less of a libertarian
than Tim myself, but I think libertarian populism is, in fact, the appropriate, American
response to the frankly extreme marriage of
government and business that has taken
place in the last couple of years. (Of course
this has been going on for decades, but it is a
pretty astonishing state of affairs when you
have the government essentially running the
nation’s largest auto manufacturer, its
12 • Cato Policy Report March/April 2010